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Informist, Friday, Oct. 10, 2025

By Janwee Prajapati and Aaryan Khanna

MUMBAI – Government bond prices ended on a mixed note Friday. Gilts maturing in 2035 fell, likely on sales by mutual funds and on caution ahead of the state bond auction notice after market hours and ahead of the weekend, dealers said. Long-term bonds ended sharply higher after the result of the weekly gilts auction was better than expected, they said.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.54, or a yield of 6.54%, against INR 98.63, or 6.52% yield, Thursday. The gilt's price rose to INR 98.71 intraday as the result of the INR 280-billion weekly gilts auction showed firm appetite from long-term investors, but sales from traders brought the price down after 1530 IST.

The 10-year bond was out of favour as traders expect both short- and long-term bonds to benefit more from the expected rate cuts in the future. Moreover, the 10-year segment has the highest share of supply in the Oct-Mar borrowing calendar, while the share of long-term bonds has been cut sharply from what it was in the Apr-Sept calendar. Some dealers said traders were likely selling the 6.33%, 2035 bond after picking up either the 6.68%, 2040 bond or the 6.90%, 2065 bond at the auction.

"The selling in the 10-year shot up after 1530 IST. Once the yields (rose above) 6.52% level, we also started selling, which I believe other investors also did and the prices fell further," a dealer at a state-owned bank said. The 6.53% yield level on the 10-year benchmark bond was seen as psychologically crucial, but expected purchases by traders and state-owned banks did not materialise, dealers said.

Traders favoured the long-term gilts on the view that their spread over the 10-year benchmark would fall, a case of "bull-flattening" of the yield curve in that segment. Demand from mutual funds was also robust for longer tenure bonds as they sought to maximise capital gains on the expectation of a rate cut in the future. They also wanted to capitalise on the firm demand from long-term investors such as life insurance companies and pension funds, seen Friday at the weekly gilts auction.

Bonds maturing in over 30 years ended sharply higher, likely due to purchases in the secondary market from investors who had missed out on the 6.90%, 2065 bond at the auction. The INR 120-billion supply was mopped up by just 24 bids, though 241 bids were received and the bid-cover ratio was over three times. Its yield fell to 7.13% intraday, the lowest level since Aug. 8. Demand for the bond via bond forward rate agreements was limited, but insurers likely deployed cash on hand to lock in yields. The bond's cut-off yield was set nearly 8 basis points lower than at its auction two weeks ago.

Some traders had expected only modest demand for the 2040 bond, but domestic and foreign banks picked up the paper at a slightly better-than-expected price at the auction, dealers said. Domestic banks bought the 6.68%, 2040 paper for their held-to-maturity books, dealers said. Some traders said its spread over the 10-year bonds was lucrative. The bond ended as the second most-traded on the day but gave up most gains as traders took profits after its price rose following the auction, dealers said.

"I know that the long-term bond is the one which has actually moved, but to me the big surprise was the 6.68%, 2040 (bond)," a dealer at a foreign bank said. "I still have doubts that the belly can sustain even this level of supply coming regularly unless something changes from here."

Gilt prices were volatile before the auction result amid a lack of firm cues, rising and then erasing gains. Some traders bought bonds noting easier money market conditions after the RBI announced a variable rate repo operation, and its variable rate reverse repo operation reversed Friday. Moreover, some traders also said their comfort on the inflation trajectory improved after Brent Crude futures for December cooled to below $65 a barrel after Hamas and Israel agreed to a US-brokered ceasefire.

Turnover in the gilts market was INR 627.90 billion, higher than INR 516.95 billion Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were six trades worth INR 300 million conducted using the RBI's wholesale e-rupee pilot, compared with five trades worth INR 250 million Thursday.

OUTLOOK

Money markets are shut Saturday. Monday, government bonds may open higher after the size of the state bond auction next week turned out to be smaller than indicated, dealers said. In a release after market hours Friday, the RBI said eight states will raise INR 128 billion through bonds Tuesday. According to the indicative calendar for state bond issuance in Oct-Mar, states were to raise INR 291 billion next week.

Traders also look ahead to the release of India's CPI data, scheduled for 1600 IST Monday, for further cues on India's rate trajectory, dealers said. CPI inflation in India likely fell to 1.5% in September, the lowest since June 2017, largely because of the statistical effect of a high base and lower food prices, according to an Informist poll of 15 economists. A low reading was already priced in to gilts.

Geopolitical developments, rupee and crude oil price movements, as well as movements in US Treasury yields may influence gilts Monday. The impact of these offshore triggers may be limited before the auction and with traders' focus on domestic monetary policy easing, dealers said. 

The rate-setting panel last week said there was room to ease monetary policy further to support growth. The 2035 bond yield is seen falling up to 6.40% before the next policy review in December, but bouts of profit-taking have erased gains as traders await fresh economic data, dealers said. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.46-6.55%.

India Gilts: Most bonds up after auction result shows firm investor appetite

MUMBAI--1515 IST--Prices of most government bonds were up as the result of the INR-280-billion weekly gilt auction showed firm appetite from long-term investors for fresh bond supply, dealers said. The 6.68%, 2040 and 6.90%, 2065 bonds sold at auction outperformed the rest of the market, especially the 40-year benchmark, whose cut-off price was better than estimated.

Demand for the longer tenure bond was firm from pension funds and life insurers, even as bond forward-rate agreements were slightly lower than usual, dealers said. The RBI accepted only 24 bids for the 2065 bond against 241 bids received. With some investors and traders missing out on the fresh supply at auction, the bond's price rose sharply in the secondary market. Its yield fell to 7.13% intraday, the lowest level since Aug. 8.

"The curve has already flattened as the cut-off in the last auction for the 6.90%, 2065 was about 7.5 basis points higher than today's cut-off," a dealer at a state-owned bank said. The bond was last auctioned two weeks ago, at a cut-off yield of 7.24%. Traders had been betting on long-term yields to fall more than those on short-term gilts after the share of supply of 30-50 year bonds in the Oct-Mar borrowing calendar was reduced.

Some traders had expected only modest demand for the 2040 bond but domestic and foreign banks picked up the paper at a slightly better-than-expected price at the auction, dealers said. Domestic banks bought the 6.68%, 2040 paper for their held-to-maturity books, dealers said. Some traders also said its spread over the 10-year bonds was lucrative.

With the bond price shooting up after the auction, traders are hoping to book profit on auction stock before the close of trade and ahead of the weekend, dealers said. The bond's price rose to a high of INR 98.89, against the auction cut-off of INR 98.68. Most traders expect bonds maturing in eight to 15 years to underperform both short- and long-term gilts as the share of gilt issuance until March is the highest in this segment, dealers said.

The auction result had minimal impact on the price of the 10-year benchmark 6.33%, 2035 bond. However, traders said the 10-year yield was unlikely to rise about 6.53% now that supply of long-term bonds had passed without a hitch. Some dealers were still wary of upcoming issuance, with the scheduled state bond auction next week at nearly INR 300 billion.

The turnover in the gilt market was INR 479.25 billion at 1515 IST, higher than INR 364.90 billion at the same time Tuesday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. For the rest of the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.50-6.54%.  (Janwee Prajapati)

India Gilts: Erase gains on caution ahead of result of INR 280-bln auction

MUMBAI--1145 IST--Government bond prices erased gains as traders placed short bets on the 10-year benchmark 6.33%, 2035 bond ahead of the INR 280-billion auction, dealers said. Though demand at the auction was seen firm, traders were unsure of investors' demand both at the auction, as well as in the secondary market after the auction ends, and chose to reduce their risks, they said. 

"Auction will be good and it will sail through but the real question is how the market will react after the auction," a dealer at a private sector bank said. "I think investor demand should be there in the 40-year (6.90%, 2065 bond), but it's been a whole week since we have seen good investor demand come in the secondary market, so that is making the market a bit nervous."

Demand for the 40-year benchmark is expected to be firm from traders, dealers said. Some large life insurers also likely bid for the paper at the auction, they said. However, with muted growth in assets under management of insurers seen, demand from investors may not be aggressive, dealers said. Some demand for forward rated agreements for the 40-year gilt was also there, they said. In the secondary market too, demand for the 40-year gilt was seen firm from traders. Longer tenure bonds were near the day's highs as overall borrowing in the segment is scheduled to be lower in the second half of the current financial year, dealers said. 

For the 15-year 6.68%, 2040 gilt too, demand from traders is expected to be firm. Traders are likely to prefer the 15-year gilt on expectations that the yield spread on the bond over the 10-year benchmark 6.33%, 2035 gilt will compress over the next two months as rate cut expectations gain ground, dealers said. However, demand from asset-liability managers of banks may be muted as the gilt does not typically match the liability requirements of banks, while other longer tenure investors will wait for further clarity on rates to take bets in the market, they said.

Meanwhile, state-owned banks found the yield on the 10-year gilt at 6.52% levels attractive to buy. They also picked up gilts maturing in five to eight years, as they found the yields attractive for their held-to-maturity books, dealers said. 

The Reserve Bank of India on Friday did not conduct a variabe rate reverse repo auction, which buoyed market sentient. Instead, it conducted a three-day variable rate repo auction, where banks borrowed INR 379.29 billion worth of funds. A fall in crude oil prices and a rise in the rupee against the dollar also likely aided domestic bond prices.

At 1130 IST, the turnover in the gilt market was INR 137.10 billion, slighly lower than INR 163.30 billion at the same time Thursday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.45-6.55%.  (Srijita Bose)

India Gilts: Tad up as RBI does not conduct VRRR Fri; crude oil prices fall 

MUMBAI--1015 IST--Government bond prices were slightly up in the absence on any further variable rate reverse repo announcement, dealers said. A fall in crude oil prices likely aided domestic bond prices. Traders await the weekly gilt auction result as it will provide direction to the market, though the supply is expected to sail through.

The Reserve Bank of India did not conduct a variable rate reverse repo auction on Friday as expected by the traders, which led to slight positivity in the market. On Thursday, the RBI conducted a variable rate reverse repo auction, which pushed up weighted average overnight money market rates by over 15 basis points from Wednesday. ICE Brent Crude oil December futures fell to $65.23 at 0827 IST from $66.04 at 1700 IST Thursday, which also aided gilts prices.

The government will sell INR 160 billion of the 6.68%, 2040 bond and INR 120 billion of the 6.90%, 2065 gilt Friday. Demand for the longer tenure bond is expected to be firm from pension funds and life insurers. Further, a reduction in the share of 30-year to 50-year bonds in the Oct-Dec borrowing calendar is likely to aid the demand for these bonds as investors may look to lock in returns. The 40-year benchmark bond's price has risen over the past week despite the upcoming supply.

Traders may demand higher returns to pick up the 2040 bond, especially as its share of supply in the Oct-Mar borrowing calendar remains high. Banks are likely to pick up the 15-year paper for their held-to-maturity books, dealers said.

The 6.33%, 2035 bond is likely to face some pressure later in the day as some traders are expected to sell this bond and move to the 6.48%, 2035, the new 10-year bond which the market is increasingly considering the benchmark after its healthy trade volumes this week. On Tuesday, the volume of the newer 10-year bond was higher than the 6.33%, 2035 bond. Some mutual funds are expected to buy bonds maturing in up to 10 years in the secondary market, dealers said.  

At 0939 IST, the turnover in the gilt market was INR 54.60 billion, higher than INR 20.75 billion at the same time Thursday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.45-6.55%.  (Janwee Prajapati)

India Gilts: Seen steady before INR 280-bln weekly bond auction

MUMBAI – Government bond prices may open steady Friday ahead of an INR-280-billion weekly gilts auction at 1030-1130 IST, dealers said. The yield on the 6.33%, 2035 gilt is seen moving in a range of 6.45-6.56% during the day. On Thursday, the 2035 gilt ended at INR 98.63 or 6.52% yield.

At Friday's auction, the government will sell INR 160 billion of the 6.68%, 2040 bond and INR 120 billion of the 6.90%, 2065 gilt. Traders may demand higher returns to pick up the 2040 bond, especially as its share of supply in the Oct-Mar borrowing calendar remains high. However, demand from pension funds and life insurers for the 2065 gilt is seen firm at the first auction of long-term gilts in Oct-Mar. The share of supply of these bonds was cut in the calendar, and state bond issuance in Oct-Dec is also scheduled to be lower than expected, which is likely to bring in demand from both investors and traders, dealers said.

Any sharp movement in overnight rates or overnight indexed swap rates may also lend cues to gilts, especially those maturing within five years, dealers said. Traders may pick up shorter tenure gilts if overnight rates and liquidity in the banking systems remain suitable, on hope of the yield curve steepening due to bets of rate cuts by the Reserve Bank of India's Monetary Policy Committee. The rate-setting panel had last week said there was room to ease monetary policy further to support growth.

On the global front, crude oil prices cooled as the Israeli government approved "phase one" of a ceasefire agreement with Hamas, which will see captives exchanged and Israel withdraw from parts of Gaza. However, details of how it fits into a wider plan to bring lasting peace in the region remain unclear. ICE Brent Crude oil December futures fell to $65.23 at 0827 IST from $66.04 at 1700 IST Thursday. This could lead to a rise in gilts, though the rise may be limited as traders will continue to focus on domestic factors, dealers said. Any sharp movement in the rupee could also lend cues to gilt prices, they said.  (Srijita Bose)  End

US$1 = INR 88.68

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Rajeev Pai

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